Key Points

• CBN Treasury bill rates set to rise.

• Bond repricing pressures short-term yield alignment.

• Investors reposition ahead of Treasury bill hikes.

On Wednesday, the Central Bank of Nigeria will return to the market with a much larger auction of Nigerian Treasury bills. It will offer N700 billion across three maturities. This is in response to changing investor interest and a recent rise in prices across the fixed-income curve.

The most recent offer is a big jump from past auctions, showing that the central bank is willing to lower borrowing costs to keep demand up, even though inflation data suggests that price pressures are easing. People in the market say the move is part of a bigger effort to bring yields in line with changing market expectations before the end of the year.

Bigger auction goals investors for short and long terms

The auction circular says that the CBN will sell N100 billion in 91-day Treasury bills to investors who want to put their money in a short-term investment. Investors with a medium-term horizon will be able to buy an extra N150 billion in 182-day paper.

Most of the auction will, however, be at the long end. The central bank plans to sell N450 billion in 364-day Treasury bills. This is because investors still prefer longer-term instruments that pay higher interest rates and protect them from the risk of having to reinvest.

Dealers say that demand for one-year bills has stayed strong in the last few weeks because institutional investors, like banks and pension funds, are moving their money around in preparation for tighter liquidity conditions. The CBN is leaning into that demand by giving more weight to the 364-day tenor and using pricing to control market expectations.

In two weeks, the rates on Treasury bills go up a lot

In the most recent round of offers, the CBN sharply raised the yields on Treasury bills, especially at the long end of the curve. The spot rate on 364-day bills rose from 16.04 percent two weeks ago to 17.95 percent, making it one of the biggest short-term changes this year.

Prices were lower for shorter maturities. The 91-day bills were available at a spot rate of 15.30 percent, and the 182-day paper was available at a rate of 15.50 percent. The repricing happened even though people were starting to expect less inflation, which raises questions about the direction of short-term monetary conditions.

Repricing in the bond market means more pressure on rates

People in the market are closely watching Wednesday’s auction for more rate changes, especially since the Debt Management Office raised yields at its bond auction earlier this week. The DMO raised the spot rates on reopened five- and seven-year bonds by 1.30 percent each on Monday, even though official data showed that headline inflation had dropped to 14.45 percent.

Analysts say that the coordinated changes in the prices of Treasury bills and bonds show that the government is putting more emphasis on keeping the market stable and getting investors involved than on short-term inflation trends. As 2025 comes to a close, dealers expect yields to keep changing as policymakers try to find the right balance between funding needs, liquidity conditions, and investor confidence in Nigeria’s fixed-income market.